Consumer confidence and financial wellbeing in January 2021
There are signs of increasing financial distress as 8% of people report missing or defaulting on a payment.
The proportion of workers who are furloughed, working reduced hours or on enforced leave as a result of the coronavirus crisis ticked back up this month, as the UK is again placed under lockdown.
All three measures of consumer confidence remain at similar levels to last month, with confidence in the future of the UK economy still deeply negative (-57) as we enter a new year.
Some financial difficulty measures show signs of increasing
Measures of financial difficulty have been surprisingly stable throughout much of the pandemic, but there were clear signs of increased financial distress in January as 7.9% of consumers reported having missed or defaulted on at least one of a housing payment, loan, credit card or bill in the last month. This compares to 6.3% in December and a pandemic low of 3.8% in September.
The rates are even higher for households on lower incomes i.e. under £21,000 (12%), those living in rented accommodation (18%) and those living in London (12%).
It is uncertain why the rate of missed payments has increased so sharply in the past couple of months, but there are a number of possibilities. First, it coincides with a decline in the proportion of households taking a payment holiday. In August, we found that 40% of those who had taken a payment holiday said they would have been otherwise unable to have made their payment. However, only 5.9% of households reported using a payment holiday in January, which is the lowest proportion since the pandemic began. This is perhaps surprising, since the availability of payment holidays has been extended.
Secondly, and relatedly, the circumstances of those who are in financial difficulty are likely to have become more acute as the crisis has continued. Qualitative research by Blue Marble, on behalf of Which? and others, has found that households feeling the effect of job losses are increasingly worried about keeping up with bills, while the Resolution Foundation has found that lower income households with children have had greater financial pressures as they have had to spend more to get by.
Finally, but again relatedly, the reintroduction of lockdown rules has meant an increase in the number of people whose incomes are being affected by the pandemic. 10% of respondents to our January survey reported being furloughed, working reduced hours or taking enforced leave. This was up from 6% in December, while the proportion working as usual has seen an equivalent decrease from 45% to 41%.
We’ve previously explored the higher financial difficulty rates among those whose working hours have been reduced by the coronavirus crisis, and again the missed or defaulted payment rate among this group was 13.3% in January, considerably higher than the 7.9% among the population as a whole.
The proportion reporting being on furlough also increased in November, when the second lockdown in England took place and there were similar restrictions in the other UK nations. With the likelihood that this lockdown will last longer than the four-week one in November, the proportion in this group could increase further, which could lead to further increases in financial difficulty.
With the FCA recently highlighting the large negative impact that entering debt arrears has on peoples’ wellbeing - a comparable effect to being made unemployed - then there will be an expectation that the forbearance rules will be extended again beyond the end of the month.
Consumer confidence remains at similar levels
Despite the evidence of worsening circumstances for some households, there was little change in our measures of consumer confidence in January.
Peoples’ confidence in the current financial situation of their household remains at a slightly higher level than pre-pandemic, whilst confidence in future household finances has recovered to nearly pre-pandemic levels following its initial drop in April. As discussed in previous updates, it is likely that household level outlook has been supported by measures put in place to support livelihoods during this time, such as the job retention scheme.
Confidence in the future of the UK economy, however, has seen a great deal of fluctuation since the beginning of the pandemic. Having initially plummeted from -17 points in February to -79 in April, it reached -35 in November following positive news about vaccine approval, the most optimistic point since the crisis began. However, it dropped again to -57 in December following case rises and increasing restrictions and has stayed at this level going into 2021. The repeated decline of this measure reveals a deep sense of pessimism among consumers about the future of the economy and it seems unlikely that this will rise until the vaccination programme becomes more established and people can foresee the end of restrictions.
The fieldwork was conducted by Yonder on behalf of Which? between 15th and 17th January 2021. A nationally representative sample of 2,082 consumers was surveyed.
Blue Marble Research followed 25 British households between May and October 2020. Each household was interviewed three times. The households reflect a broad spectrum of the UK population and socio-economic grade.
If you have any questions or would like to find out more, please email Sophie Beesley at firstname.lastname@example.org